According to the Motley Fool, “Only 31% of US adults are confident their retirement savings will last.” That’s an amazing number. How sure are you about your plans and funding?
Why are people concerned about their future? Here’s a beginning list:
- The current economic downturn or potential recession
- The world conflicts and potential escalation with Russia and China
- Inflation at 8+% and pay raises of only 4+%
- The supply chain crunch: Food, essential products, infant formula
- Gasoline prices and the cost of travel/commuting
- Moving from remote to office jobs with family disruptions
- Remaining pandemic issues along with monkeypox (what’s next?)
- The cost of raising a child until age 17 is $233,610 on average.
- Your average life expectancy in the U.S. is almost 80 years.
- What can you add to the list?
What are some guidelines that might help give you a direction?
- Put a percent of income into a retirement account. The older you are, the higher the %..
- Maximize your 401K contributions, both the matching amount from the company and the optional amount beyond the company match. No other investment or asset can give you a greater return-of investment than the 50% or more match from your employer. About 80% of employers have a 401K plan. Unfortunately, only about 70% of employees take advantage of the opportunity to participate. For the 30% missing out? Bad mistake.
- Don’t count on Social Security as the only source of income during retirement. It’s not enough. It may only cover about 50% of your expenses at best.
- The old formula of using only 4% of your savings annually during retirement has been modified to less than 4%. Stay tuned. I’m afraid that number may change with time.
- The old formula of spending 75% of your current expenses during retirement isn’t holding up. Doctor expenses, drug costs and medical outlays have accelerated faster than the average cost of living. Inflation is also a comfortable retirement killer.
So, what do you do? Simple advice that may be difficult to achieve:
- Keep your job. Taking a break or being unemployed puts you behind the retirement curve.
- If a spouse provides a second income, pocket most of it. A double income today may not last. Basing retirement 20 or 30 years out on a double income today, is unrealistic.
- Maximize your 401K, especially the part that the company matches
- Put some money aside during the good times, in preparation for the bad times.
- Keep your skills, knowledge and experiences at the leading edge. It may determine your future. Live below your means as you move up the ladder of success.
- Retiring early may not be a good idea. Understand your finances first, then figure out how you plan to use your time productively. Some activities/hobbies/travels are short lived.
Plan for retirement early so you don’t have to worry about it when it’s 5 or 10 years away. Playing catchup when you’re running out of time is a losing strategy.
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